Kuwait IndiaKuwait India extendsextends A Hearty WelcomeA Hearty Welcome toto Engineers/Members of the I.E.I (Kuwait Chapter)Engineers/Members of the I.E.I (Kuwait Chapter) Monday, May 10, 2010 Monday, May 10, 2010

Personal Financial Personal Financial Planning & Planning &

Investment StrategyInvestment Strategy

…. a presentation by R.Kuppanna , General Manager, Kuwait India International Exchange Co.

May 10, 2010

Save, Invest & Grow Wealth

• How does one save, protect savings, plan How does one save, protect savings, plan finances, invest, build wealth? finances, invest, build wealth?

• Principles & FrameworkPrinciples & Framework• Process : long term, systematic, patient, Process : long term, systematic, patient,

disciplineddisciplined

A public opinion poll is no substitute for thought - - Warren Buffett

Risk – Return GraphRisk – Return Graph

The Power of CompoundingThe Power of Compounding

• A sum of Rs. 100 invested would add up to:A sum of Rs. 100 invested would add up to:CAGR (%)/

YEARS 8 10 15 20

1010 216216 259259 405405 619619

1515 317317 418418 814814 15411541

2020 466466 673673 1637 1637 38343834

Compounding, says Einstein, is “the eighth wonder of the world”

Investing Framework--Investing Framework--EquitiesEquities

• Intelligence vs. IndependenceIntelligence vs. Independence• Top Down vs. Bottom-Up ApproachTop Down vs. Bottom-Up Approach• Preparation:Preparation:

>> generate alternativesgenerate alternatives > eliminate alternatives> eliminate alternatives > construct portfolio> construct portfolio• Margin of SafetyMargin of Safety• Investor or Speculator?Investor or Speculator?====================================================

Warren Buffet’s Rules :1. Do not lose money 2. Do not forget rule # 1

Qualitative AspectsQualitative Aspects

• Manage Greed & FearManage Greed & Fear• Avoid emotional attachmentAvoid emotional attachment• Avoid actions based on Avoid actions based on

hearsay/rumours/sentimentshearsay/rumours/sentiments• Avoid over-leveragingAvoid over-leveraging• Don’t try to time the market Don’t try to time the market

• An investment in knowledge always pays the best interest ……… Benjamin Franklin

Mutual Funds

Suitable for those who:Suitable for those who: --don’t have wherewithal for research--don’t have wherewithal for research --have limited resources--have limited resources --have little time and--have little time and --still would like to benefit from equities--still would like to benefit from equities

Mutual Funds• Not an alternative investment option to Not an alternative investment option to

stocks/bondsstocks/bonds• Pools monies of several investors and invests in Pools monies of several investors and invests in

stocks/bonds/other securitiesstocks/bonds/other securities• Owner of a mutual fund gets a proportional Owner of a mutual fund gets a proportional

share of fund’s gains/losses/income/expensesshare of fund’s gains/losses/income/expenses• Derives the benefits of professional Derives the benefits of professional

management, diversification, liquidity, management, diversification, liquidity, affordability, convenience, flexibility, varietyaffordability, convenience, flexibility, variety

Mutual Funds

OBJECTIVEOBJECTIVE INVESTMENTSINVESTMENTS

Equity (Growth)Equity (Growth) Stocks/SharesStocks/SharesDebt (income)Debt (income) Fixed Income SecuritiesFixed Income SecuritiesMoney MarketMoney Market Short-term Liquid Short-term Liquid

InstrumentsInstrumentsBalancedBalanced Partly Stocks/Partly Partly Stocks/Partly

Fixed IncomeFixed Income

Mutual Funds

• Types of Funds:Types of Funds:

> Open-Ended (can enter/exit fund)> Open-Ended (can enter/exit fund) > Close-Ended (exit after scheme period)> Close-Ended (exit after scheme period) > Interval-Fund (entry/exit at periodical > Interval-Fund (entry/exit at periodical intervals (quarterly/half-yearly etc.)intervals (quarterly/half-yearly etc.)

Exchange Traded Funds (ETFs)

• What? –Investment Schemes whose units are What? –Investment Schemes whose units are listed on stock exchanges: after listing, traded listed on stock exchanges: after listing, traded like equity stockslike equity stocks

• ETFs have some underlying security or group ETFs have some underlying security or group of securities (like an index), commodities (like of securities (like an index), commodities (like gold or oil)gold or oil)

• Underlying securities determine the value of Underlying securities determine the value of ETFsETFs

Gold ETFs

• Has gold as the underlying securityHas gold as the underlying security• Advantages: owning gold without the hassles Advantages: owning gold without the hassles

of physically holding them—avoiding of physically holding them—avoiding expenses, bank vault charges, insurance etc.expenses, bank vault charges, insurance etc.

• No concerns of quality—gold backing from No concerns of quality—gold backing from LMBA and stored in vaults; fund house takes LMBA and stored in vaults; fund house takes care of all risks of storage and safety; minimal care of all risks of storage and safety; minimal expense ratioexpense ratio

• Buying/Selling : Very EasyBuying/Selling : Very Easy

Typical Portfolios• Depending upon one’s ability to take risk, portfolio Depending upon one’s ability to take risk, portfolio

compositions will vary. Table below captures these compositions will vary. Table below captures these aspects. Illustrative only.aspects. Illustrative only.

Risk Taking/ Risk Taking/ Asset Mix (%)Asset Mix (%)

HighHigh MediumMedium LowLow

EquityEquity 60-70 60-70 4040 25-2025-20

DebtDebt 20-10 20-10 4040 45-5545-55

SB/Liquid FundsSB/Liquid Funds 10-510-5 10-510-5 20-1020-10

Gold (ETFs,Bars)Gold (ETFs,Bars) 10-1510-15 10-1510-15 10-1510-15

Caveats• All investments carry riskAll investments carry risk• Be clear about objectives of investingBe clear about objectives of investing• Take informed decisionsTake informed decisions• No substitute for learningNo substitute for learning• Long-term orientation (systematic,disciplined)Long-term orientation (systematic,disciplined)• Invest only savings that can be put away for a Invest only savings that can be put away for a

longer periodlonger period• Consult, seek advice….but act according to Consult, seek advice….but act according to

own judgmentown judgment

The Broken WindowThe Broken Window

• The art of economics consists in looking not The art of economics consists in looking not merely at the immediate but at the long merely at the immediate but at the long effects of any act or policy; it consists in effects of any act or policy; it consists in tracing the consequences of that policy not tracing the consequences of that policy not merely for one group but for all groups – merely for one group but for all groups – Henry HazlittHenry Hazlitt

The Trader Principle

There is no conflict of interests among men who do There is no conflict of interests among men who do not desire the undeserved, who do not make not desire the undeserved, who do not make sacrifices nor accept them, who deal with one sacrifices nor accept them, who deal with one another as another as traderstraders, giving value for value., giving value for value.

The principle of The principle of tradetrade is the only rational ethical is the only rational ethical principle for all human relationships, personal and principle for all human relationships, personal and social, private and public, spiritual and material. It is social, private and public, spiritual and material. It is the principle of the principle of justicejustice.. -- Ayn Rand

ConclusionConclusion• On a lighter note:On a lighter note:

• OCTOBER: OCTOBER: This is one of the peculiarly dangerous months to This is one of the peculiarly dangerous months to speculate in stocks . The other months are July, January, speculate in stocks . The other months are July, January, September, April, November, May, March, June, December, September, April, November, May, March, June, December, August, and February.August, and February.

- Pudd'nhead Wilson's Calendar- Pudd'nhead Wilson's Calendar

• There are two times in a man's life when he should not There are two times in a man's life when he should not speculate: when he can't afford it and when he can.speculate: when he can't afford it and when he can.

- Following the Equator, Pudd'nhead Wilson's New Calendar- Following the Equator, Pudd'nhead Wilson's New Calendar

(Both quotes from Mark Twain)

THANK YOUTHANK YOU